Why The Glacial Adoption of the Mobile Wallet?

NEW YORK (MainStreet) — Here is the 2013 point of sale paradox: everybody is talking, loudly, about the digital wallet as a credit card replacement - and yet just about nobody is using those wallets.

Ask yourself, how many times in the past week have you used an old-fashioned credit or debit card? How many times did you use a digital wallet on a smartphone or tablet at point of sale? The answer to the first probably is too many to remember, whereas the second answer probably is none.

That is not where we are supposed to be, six years into the smartphone revolution triggered by the launch of the iPhone.

The questions are why - and when will this change?

“It doesn’t feel we are any nearer to a digital wallet than we were six years ago,” said Jon Squire, CEO of CARDFREE, a San Francisco-based payments innovation company.

“If it’s just about payments there’s no reason to use a digital wallet,” said Mike Love, CTO of Mozido, a cloud-based mobile rewards company in New York.

This is where the digital wallet stalls: “It takes seven seconds to swipe a credit card. Consumers are happy. Merchants are happy,” said Andy O’Dell, a co-founder of Clutch, a Philadelphia-based developer of a digital wallet. “To succeed a wallet has to go beyond the transaction,” that is, the payment itself.

How? A wallet can bring convenience - by loading many loyalty cards and rewards programs into one app, as Apple is doing with its Passbook for instance. But note: Apple very consciously side-stepped transaction capabilities in Passbook, meaning it is built to serve as a digital repository of credential (much as a leather wallet holds plastic cards and other ID). But Passbook cannot currently be used to facilitate a purchase and, probably, that is no great set-back.

“We don’t need a transactional e-wallet because we already have so many ways to pay,” said Hank Israel, a consultant with banking consultancy Novantas in New York.

But there are many who aren’t giving up on the quest to roll out a digital wallet consumers actually want. “We are seeking to bring value to the consumer,” said O’Dell, and that could come in the form of location-sensitive deals and discounts. Tell consumers what’s in it for them to use a digital wallet and, just maybe, some will.

But even there, consumer and merchant pick up is slender, mainly because credit cards work so very well and we have more than 35 years of experience in using them. They already offer rewards, and loyalty points and, no, they do not know where we are at all moments - as a smartphone digital wallet would - but that is not necessarily the prod that pushes us to embrace digital wallets because, so far, few of us have.

So is that RIP for the digital wallet? Not so fast. David Stone, CEO of CashStar, a Portland, ME based gift card company, said that at least one digital wallet already has risen to stardom, and he pointed to the Starbucks card. The technology works, he stressed - Starbucks uses simple barcodes, not fancy Near Field Communication (NFC) or other next-gen tools. And consumers seem to like it. “The Starbucks card is unique,” Stone said.

"But no one has broad adoption for a multi-merchant card.”

“It’s the consumer, stupid,” said Stone, and he stressed that for consumers to adopt a digital wallet en masse it has to be convenient and to able to be something approaching ubiquity.

Sell the consumers and the next step is persuading retailers to hop aboard and install readers, said Stone, but probably that will happen in due course as enough consumers begin toting a digital wallet

That sets the stage for a delicate chicken-egg dance, who will go first?

Nobody, frankly, is sure, and that uncertainty is why smart money for now is betting on the emergence of more Starbucks-style successes--that is, single merchant wallets that are adopted by hard-core customers. There's a plus for the broader digital wallet industry: using any wallet helps us grow accustomed to paying with a phone, rather than a plastic card, and that probably is the biggest hurdle to jump. Use a Starbucks card, in other words, and that is halfway to conversion to broader digital wallet use. As more specialty wallets come out, the dial will re-set with us all closer to widespread deployment of digital wallets.

So when will we begin using multi-merchant wallets? O’Dell has a guess: “The 2015-2017 range,” he said. Check back to see if he is right but know this, for now nobody is predicting mass adoption much sooner so if you are holding back on digital wallet usage, know you have company.

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